In a report out today, the Engineering Employers Federation said that between April and June this year engineering companies accounted for 17% of the money levied by the Treausry.

EEF director general Martin Temple said: ‘Our figures prove the government was wrong when saying the levy would not impact on competitiveness, when in reality it is imposing an ever greater burden on manufacturing at a time when it is already in recession.’

Temple said the gross increase in costs to the engineering sector would be £174m per annum, but would probably rise as high as £200m. After reductions in national insurance are taken into account, the net increase in costs is likely to exceed £100m.

The EEF’s opposition to the levy is nothing new. It has stood shoulder-to-shoulder with the Confederation of British Industry president Digby Jones in condemning the climate tax on business use of energy.

But deputy prime minister John Prescott today warned the costs of ignoring climate change would be far greater.

‘The consequences [of climate change] are quite considerable for our industrial base and for our present society,’ he told BBC Radio 4’s Today programme. As part of its report, the EEF suggested alternatives to the levy put forward by consultants Oxford Economic Forecasting. Its most favoured solution is for the government to reduce the levy, abolish national insurance reductions and channel all the revenue raised into incentives to invest in energy-saving equipment.

‘Our alternative proposals are giving the government a win-win situation by achieving a balance between reducing carbon emissions and promoting growth in employment and output,’ said Temple. ‘They provide a basis for a fairer and more effective levy with the carrot equal to the size of the stick.’